Nesmith v. Commissioner
| Citation | 1981 TC Memo 561,42 TCM (CCH) 1269 |
| Decision Date | 29 September 1981 |
| Docket Number | Docket No. 13849-78. |
| Parties | Robert M. Nesmith v. Commissioner. |
| Court | U.S. Tax Court |
Robert I. White and Larry A. Campagna, 1100 Milam St., Houston, Tex., for the petitioner. John F. Eiman, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined the following deficiencies in and additions to the petitioner's Federal income tax:
Addition to Tax1
Sec. 6653(b),2
Year Deficiency I.R.C. 1954
1970 ........... $ 72.27 $3,043.96
1971 ........... 112.29 3,283.66
1972 ........... 142.26 4,585.30
The issues for decision are:
(1) whether the filing of nonfraudulent amended returns, subsequent to the filing of fraudulent returns, commenced the runing of the three-year period of limitations in section 6501(a) so as to bar the assessment and collection of the proposed deficiencies and the additions to tax for fraud for the taxable years 1970, 1971, and 1972, or whether assessment and collection are timely under either section 6501(c)(1) or under sections 6501(e) and 6501(c)(4);
(2) whether this Court has jurisdiction to determine an overpayment of taxes by petitioner, and, if so, whether petitioner overpaid his Federal income taxes; and
(3) to what extent, if any, is refund of the overpayment barred by the statute of limitations.
Most of the facts have been stipulated. The stipulations of facts and attached exhibits are incorporated herein by this reference.
Petitioner Robert M. Nesmith resided in Leander, Texas, when he filed his petition in this case. Petitioner and his wife timely filed joint Federal income tax returns for the taxable years 1970, 1971, and 1972. (These returns will be referred to as petitioner's "original" returns.) For purposes of this case the petitioner concedes the fraudulent nature of his original returns.
On June 5, 1973, a representative of the Commissioner contacted petitioner regarding examination of petitioner's and his wife's 1971 income tax return. The examination was soon extended to the taxable years 1970 and 1972. Petitioner contacted an attorney to provide him legal counsel concerning the examination of the original returns. This attorney advised the petitioner to "lay low" and not cooperate with the government. The attorney even suggested that petitioner plead the Fifth Amendment. Petitioner became very nervous and upset about following this advice. Petitioner told his attorney that he did not want to handle the case in the manner advised but that he wanted to "get to the truth of these returns and get them made up right." When the attorney did not agree to cooperate with petitioner's intended action, petitioner dismissed him. Petitioner asked one of his relatives, who is an attorney, to recommend new counsel. The relative referred petitioner to Robert I. White.
Petitioner contacted Mr. White in October of 1973. Mr. White immediately contacted a representative of the Commissioner to meet regarding petitioner's audit. This action pleased petitioner. In talking with petitioner about the matter, Mr. White learned that the original returns had not been prepared from books and records but rather from estimates. Mr. White recommended that he and petitioner engage a CPA to prepare proper books and records from petitioner's bank records and other documents. This was done. Petitioner worked closely with Mr. White and the CPA to prepare an accurate account of income and expenses for the taxable years in issue. After these books and records were prepared and after petitioner reviewed them, petitioner authorized Mr. White to have true and accurate amended returns prepared, which he did. Petitioner intended to file accurate returns and fully pay his Federal income taxes.
The petitioner and his wife signed these amended returns (the "amended" returns) and filed them. The Director, Austin Service Center, received the amended 1970 and 1972 returns on December 14, 1973, and the amended 1971 return on December 17, 1973. These amended returns reported additional taxable income which resulted in additional income tax liability in the following amounts, which were remitted with the amended returns:
Taxable Year Amount
1970 ................ $6,978.14
1971 ................ 7,100.53
1972 ................ 9,389.47
The Commissioner notified the petitioner and his wife by letters dated February 12, 1974, and January 31, 1975, that the funds would be held by the Commissioner as cash bonds for payment of taxes, if any, that might be assessed at a later date. These letters indicated that for a period of 30 days subsequent to such notification, the petitioner could request a return of the funds held as a cash bond. No claim for refund was appropriate at that time because the cash bond was not applied as payment of any assessment of any taxes for any year.
The petitioner and his counsel cooperated with the Commissioner's investigation by providing both petitioner's bank records and the accountant's workpapers that were used to prepare the amended returns as well as by making the petitioner and the CPA available for interviews and statements. The Commissioner analyzed petitioner's bank records and determined, by April 22, 1974, that the amended returns were correct and accurate in every material way.3
Mr. White, acting for petitioner pursuant to a power of attorney, executed a series of four agreements extending the period of limitations on assessment and collection. The first agreement extended the period for assessment of Federal income tax due from petitioner for the taxable year 1970 to April 15, 1975. The second agreement extended the period for assessment of petitioner's 1970 Federal income tax liability to December 31, 1977, but was conditioned on the applicability of the six-year period of limitations under section 6501(e). The third agreement similarly extended the period for assessment of 1970 and 1971 tax liability to June 30, 1978, and was also conditional on the applicability of section 6501(e). The fourth and final agreement executed by the petitioner on March 29, 1978, and by the Commissioner on April 3, 1978, extended the period for assessment of the Federal income tax liability of petitioner for the taxable years 1970, 1971, and 1972 to December 31, 1978.
Petitioner omitted from the original returns filed for himself and his wife gross income in excess of 25 percent of gross income stated on the returns.
The respondent assessed the taxes shown to be due on the amended returns on November 18, 1977. On December 1, 1978, the Commissioner mailed a statutory notice to petitioner and his wife in which he disallowed deductions claimed for contributions to a retirement plan and in which he determined that petitioner was liable for addition to tax under section 6653(b).
Petitioner did not intend to defeat or evade the income tax when he filed his amended returns for the taxable years 1970, 1971, and 1972.
OpinionThe first issue concerns whether the assessment and collection of the proposed deficiencies in tax and additions to tax for the taxable years 1970, 1971, and 1972 were barred by the running of the period of limitations when the Commissioner mailed his statutory notice of deficiency.4 The pertinent parts of section 6501 provide as follows:5
Petitioner argues that his filing of non-fraudulent amended returns subsequent to his filing of fraudulent original returns invoked the three-year period of limitations in section 6501(a), and the three-year period of limitations commenced to run upon the filing of the amended returns. Respondent argues that the applicable period of limitations was determined by the nature of the fraudulent original returns and was the unlimited period provided by section 6501(c)(1). It is uncontroverted that the statutory notice was mailed after the general three-year period of limitations, whether that period begins to run from the time of filing either the original or the amended returns. Respondent has the burden of proving that the period of limitations is other than the three-year general rule, e.g., Farmers Feed Co.v. Commissioner Dec. 3626, 10 B.T.A. 1069 (1928). Respondent contends that no language in section 6501 and no subsequent action by petitioner rendered section 6501(c)(1) inapplicable or served to bring section 6501(a) into operation. Respondent also argues that the petitioner omitted from gross income amounts in excess of 25 percent of the gross income stated in the original returns, so that the period of limitations is at least six years from the original return and thus the mailing of the statutory notice was timely as to the taxable years 1970 and 1971 because of the...
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